2012 in Review
Painted Pony's business strategy in 2012 focused on continued delineation of its Montney play in northeast British Columbia. The Company's light oil program provided for continued development of its Saskatchewan light oil assets while commencing exploratory drilling in Alberta. The emphasis was on adding proved and probable gas reserves and contingent resources. At December 31, 2012, the Company's proved plus probable reserves increased to 1.15 Tcfe, equating to 191 mmboe, up 40% from 137 mmboe at December 31, 2011. A best estimate as at December 31, 2012 of contingent resources for the Company's Montney asset was 3.15 Tcfe equating to 525 mmboe.
During the 2012 year, Painted Pony actively sought to acquire additional Montney holdings through land sales and asset purchases, to expand the Company's prospective drilling inventory. The Company closed several asset acquisitions on this play, including buying approximately 25 net contiguous sections in the Kobes-Townsend area and consolidating its existing holdings in the Cypress area through the further purchase of approximately 13 net sections. In conjunction with ongoing crown land sales, these transactions brought the Company's overall Montney landholdings to 187 net sections by the end of 2012.
Painted Pony grew production by 56% in 2012 to average 6,589 boe/d. Sales were weighted 77% to gas in 2012 compared to 62% in 2011. In the fourth quarter of 2012, the Company grew the average daily production to 7,289 boe/d (weighted 76% to gas) an increase of 15% compared to the third quarter of 2012. With average gas sales of 33.4 mmcf/d, Painted Pony is pleased to have achieved a new production record, with incremental volumes of 14% over third quarter 2012 and 58% over fourth quarter 2011.
In response to continued volatility in commodity prices, in 2012, the Company adhered to a conservative fiscal policy. A bought-deal equity financing raised $172.5 million before costs, allowing Painted Pony continued flexibility. The Company exited the year with a positive working capital position of $45.2 million and an undrawn demand credit facility of $100 million.
Expenditures on exploration and development in 2012 totaled $118 million. Painted Pony drilled 34 (26.4 net) wells. In British Columbia, Painted Pony drilled 10 (6.6 net) wells on the Company's Blair, West Blair and Cameron lands. In Saskatchewan, the Company focused on development drilling on Bakken and Mississippian light oil projects, principally in the Flat Lake and greater Midale areas. During 2012, Painted Pony drilled 21 (16.8 net) wells in Saskatchewan, including 11 (9.3 net) wells at Flat Lake. During 2012, Painted Pony initiated a light oil exploration program in Alberta. The Company drilled 3 (3.0 net) wells, targeting the Viking formation at Wimborne and Corbett. While the 2 (2.0 net) wells drilled in the Wimborne area failed to produce commercial volumes of hydrocarbons, Painted Pony is planning further drilling in the Corbett area during 2013, following up on the first 100% well drilled in 2012 and tested earlier this year.
The Company's Montney assets are strategically located to become potential integral components of Canada's developing liquefied natural gas ("LNG") industry. In 2013, the Company is primarily focused on developing and expanding these Montney assets. The projected capital budget for 2013 is forecast at $145 million, of which approximately 81% ($117 million) will be directed towards gas projects. Consistent with the objective of acquiring incremental acreage, the Company's Montney lands in northeastern British Columbia now total approximately 121,900 net acres, or 190 net sections. Field production for the first two months of 2013 is estimated at 8,200 boe/d, weighted 78% to gas.
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